Choosing the Right Business Structure for Your Start-up
A practical overview for founders, small businesses and early-stage ventures
One of the first legal decisions when launching a business is choosing the right structure.
Your business structure determines:
how profits are taxed
who is legally responsible for debts
how investors can participate
the level of regulation and compliance
how ownership can change over time
Choosing the right structure early can help avoid costly restructuring later.
This guide provides a high-level overview of the most common business structures used by start-ups in Australia.
1 . Sole trader
A sole trader structure is the simplest way to start a business.
Under this model, the individual operates the business personally and is legally responsible for its activities. Because there is no separate legal entity, the owner is personally liable for all debts and obligations of the business. This means personal assets may be exposed to business risk.
Many founders begin as a sole trader and later transition to a company once the business grows or external investment becomes relevant.
-
The business and the individual are legally the same
The owner keeps all profits
Business income is taxed as personal income
Minimal set-up and compliance requirements
-
freelancers
consultants
creative professionals
independent contractors
early-stage founders testing an idea
-
ABN registration: free
Business name registration: $45 (one year) - $104 (three years)
Legal set-up (Key services & contractor agreements for the business): approx. $2,000-3,000 (plus GST)
2 . Partnership
A partnership exists where two or more people operate a business together with the intention of making a profit.
Partnerships can arise formally through an agreement or informally through conduct.
Partners are generally jointly and severally liable for the actions of the partnership. This means each partner can be responsible for debts incurred by another partner acting in the business.
For this reason, it is strongly recommended that partnerships have a written partnership agreement setting out roles, decision-making processes and exit arrangements.
-
No shareholders or profit distribution
Governed by a board of directors and secretary
Must have minimum of three directors, with two require to reside in Australia.
Strong governance framework
Eligible for government funding and philanthropy
Can hold property, employ staff, enter into contracts, can sue and be sued, and enjoy perpetual succession
-
charities and foundations
major arts organisations
national cultural organisations
-
ABN registration: free
Business name registration: $45 (one year) - $104 (three years)
Partnership agreement (recommended): approximately $2,000–$3,000 + GST
3 . Proprietary Company
(Pty Ltd)
A proprietary company is the most common business structure in Australia. A company is a separate legal entity that can own assets, enter contracts and operate independently from its owners.
Companies offer stronger asset protection and clearer ownership structures. However, they also involve additional compliance obligations such as maintaining company registers, director duties under the Corporations Act and annual reporting requirements with ASIC.
Many start-ups also adopt a shareholders agreement to regulate ownership, decision-making and investor rights.
-
Owned by shareholders and profits can be distributed to shareholders through dividends
Governed by directors / board
Founders can retain ownership and control through agreement
Flexible commercial operations
Liability of shareholders is generally limited to their share capital
The company pays tax on its profits
-
technology start-ups
product-based businesses
creative studios and production companies
ventures planning to raise capital
-
ASIC registration: $611
Annual review fee: $329
Business name registration: $45 (one year) - $104 (three years)
Legal set-up (shareholders agreement + company constitution): approx. $2,500–$6,000
4 . Trust structures
A trust is a structure where a trustee holds assets on behalf of its beneficiaries.
Unlike companies, a trust is not a separate legal entity. Instead, the trustee (which may be an individual or a company) is responsible for managing the trust and complying with the terms set out in a trust deed.
Trust structures are commonly used in Australia for asset protection, tax planning and wealth management, as they can offer flexibility in distributing income.
They may be used in combination with companies in more complex business structures, however they are generally less suitable for start-ups seeking external investment, because ownership and governance can be more complex.
-
Between the entities, the organisation can:
access grants and philanthropic funding through the NFP entity
run commercial activities and events through a company
separate risk and manage intellectual property between entities
NFP entity may be eligible for charitable tax concessions and deductible gift recipient (DGR) status, depending on its purpose.
-
A hybrid structure may be appropriate for not-for-profits that:
want to generate revenue through commercial activities
run events, programs, or services with ticket sales or fees
want to protect assets and manage risk
plan to scale their operations
want to balance mission and financial sustainability
-
Discretionary Trust (Family Trust)
The most common type of trust used for small and family businesses in Australia.
The trustee has discretion over how income and capital are distributed between beneficiaries each year.
This flexibility can allow income to be distributed in a tax-effective manner between family members or related entities.
Unit trusts
Operate more like a company structure.
Instead of beneficiaries receiving discretionary distributions, investors hold units in the trust, similar to shares in a company. Income is distributed according to the number of units held.
Unit trusts are often used where multiple unrelated investors are involved.
Hybrid trusts
Combine features of discretionary trusts and unit trusts, allowing for both fixed entitlements and discretionary distributions.
These are more complex and are typically used in specialised circumstances. Because hybrid trusts can have complex tax implications, they usually require careful accounting and legal advice.
-
Not-for-profit registration: approx. $200 (incorporated association) - $600 (CLG)
Trading entity ASIC registration: approx. $600
ACNC registration application $0 (legal fees apply)
Legal set-up (constitutions + inter-entity agreements): approx. $5,000–$10,000 depending on complexity
Choosing the right structure
There is no single “best” structure for every start-up.
The right choice depends on factors such as:
your risk profile
whether you plan to bring in co-founders or investors
how profits will be distributed
whether the business is intended to scale
Many founders start with a simple structure and later transition to a company as the venture grows.
However, restructuring can involve additional costs and tax considerations, so seeking advice early can help ensure your structure supports your long-term goals.
Choosing the right structure is only one part of building a legally sound business.
Founders should also consider:
intellectual property ownership
founder and shareholder agreements
employment and contractor arrangements
privacy and website terms
governance frameworks for decision-making
If you are launching a new venture and would like guidance on the appropriate structure, it can be helpful to obtain legal advice early in the process.
